Cullen Speech To Ourtown Rangiora Breakfast

Thank you for the welcome.
It is a pleasure to be in Rangiora and to be discussing with
you the prospects for the local economy.

I am very used
to engaging in debates about trends in the national economy,
but it is good to be reminded that, at the end of the day,
what we think of as the national economy is simply the
aggregation of local economies. And in turn local economies
are an expression of the skills, hard work and ambition of
local communities.

The real economy happens on the
streets of towns like Rangiora and in farming communities
like those which look to Rangiora for their services. It
has been the ambition of the Labour-Alliance government to
take actions that have practical benefits for real
businesses and communities throughout the country.

In
Rangiora you are well positioned to observe the way the
economy is changing. You have a strong connection to the
rural heartland, focusing on traditional primary produce and
processing, but increasingly looking to niche products and
new technologies to provide additional value and secure
ongoing success in world markets. And just down the road in
the city of Christchurch you have one of our major centres
of manufacturing, electronics, telecommunications, software
and tourism.

As a whole, the Canterbury regional economy
is in very good shape, despite the uncertainty that has
dogged world markets following the September 11 attacks of
last year. Economic activity in the region rose by 4.2
percent in the year to December. This result was spread
across a broad base, including of course the primary sector,
benefiting from good growing weather and a low New Zealand
dollar, but also a booming tourist industry, despite the
temporary drop in international visitors immediately after
September 11.

As a result, unemployment in the region is
below the national average at 4.9 percent in December last
year, and business confidence has bounced back strongly
after a difficult final quarter of 2001, with businesses
expressing positive expectations in terms of staffing,
investment and anticipated sales and profits.

I will not
try to claim that all is rosy, however. There are
challenges ahead, in the shape of a potential rise in the
value of the dollar and the forecast for an emerging El Nino
weather pattern later this year. But things could be a lot
worse; and most importantly the New Zealand economy – and
the Canterbury economy – is showing that it is increasingly
better positioned to weather economic storms as we become
more diverse, more entrepreneurial and more innovative.

It
is fair to ask: what role does government have to play in
the Rangiora economy, and in securing its future? In the
past ten to fifteen years, governments have found this kind
of question something of an embarrassment. This is because
they have adopted a passive, standing-on-the-sidelines,
approach to economic growth, and have tended to deny any
constructive role for government in the economy.

However,
this government recognises that government is a legitimate
part of the equation for local economies, and that the
smaller, smarter government we now have should be tightly
focused on activities that protect and promote the kind of
economic and social conditions we want for ourselves.
Things like bio-security, environmental protection, law and
order, education, workplace safety and health care
contribute to strong communities and a health economy.

These are not luxuries; they are necessary for our
continued growth and well-being. But at the same time the
government is committed to ensuring that they impose the
minimum cost, both in terms of fiscal expenditure and in
terms of compliance costs.

Over 95 percent of New Zealand
employers have fewer than 20 employees, 84 percent have
fewer than five. I imagine – although I have no figures to
prove it – that most of the businesses represented here this
morning fall into these categories. The government
recognises that compliance costs can be a major irritant and
impediment to small and medium enterprises who generally do
not have access to the economies of scale larger companies
have in dealing with regulatory and taxation issues. Hence
reducing compliance costs for small businesses is good for
economic growth because it releases money and time for
growing New Zealand’s companies.

Last May we released a
discussion document entitled “More Time for Business” aimed
at reducing the stress, uncertainty and risks small
businesses face in meeting their tax obligations. The
discussion document contained a number of proposals relating
to small businesses, including provisional tax, employers
and PAYE end-of-year tax adjustments and ways to benefit
from information technology.

The tangible outcome of that
discussion document is a set of new provisions in a taxation
bill introduced into Parliament in December for passage this
year. These include:

- Removing the need for companies to
file multiple imputation returns in order to receive refunds
of income tax;

- Reducing the number of provisional
taxpayers who are exposed to use of money interest by
increasing the threshold under which a provisional taxpayer
is not subject to the use of money interest rules from
$30,000 to $35,000 of residual income tax;

- Making it
easier for banks and other interest payers to communicate
resident withholding tax information to their customers;
and

- Not requiring small businesses to value and make
adjustments for small amounts of trading stock ($5,000) at
the end of the year.

In addition there are a number of
other measures that are still under consideration for
inclusion in future legislation. These include:

-
Allowing employers to transfer PAYE obligations to
intermediaries such as payroll firms;

- Pooling of tax
payments with a view to reducing the risk of use-of-money
interest charges; and

- Allowing small businesses to align
their provisional tax payments to their GST payments, which
will help relieve cash-flow problems and remove risk of
exposure to use-of-money interest.

Even so, there will
always be a limit to how simple we can make the tax system.
However, the government is committed to an ongoing and open
process of reviewing tax issues from the perspective of the
small and medium sized businesses that make up such a large
portion of our economy.

Looking more broadly than
taxation, in July 2001 the government received the report of
the Ministerial Panel on Business Compliance Costs. This
report contained 162 recommendations aimed at reducing
compliance costs incurred by New Zealand businesses. Our
response has been to focus on a number of key themes from
the Panel’s report:

- Improving the use of information and
communications technology to reduce compliance costs for
business. Our goal is that by 2004 the Internet will be the
dominant means of enabling ready access to government
information, services and processes. Already many key
business dealings with government can be carried out
electronically, including customs processes, tax returns,
personal property security registrations and company
registrations.

- Making compliance easier by, for
example, integrating the billing for ACC levies into one
invoice from one source from 1 April 2002, and improving the
ACC 45 form – the form filled out at the doctor’s when an
ACC claim is made. This can now be lodged electronically,
reducing the kind of errors that adversely affect
employers.

- Working with local government to help improve
the quality and implementation of regulations. An
accredited council scheme is being progressed, and I trust
that your local authority is working towards
accreditation.

- Involving business earlier in the policy
development process, in the overseeing of the implementation
phase of legislation and the review of the policy outcomes.
This will help to produce better quality regulation.

-Introducing a new requirement for a business compliance
cost statement to be published as part of all new
legislation that has compliance cost consequences. This
will counteract the creeping build-up of compliance costs by
ensuring that Parliament is alerted to the compliance costs
that legislation would impose on businesses. It will also
give businesses the opportunity to have a say on those costs
as part of the select committee process.

In the context of
the government’s commitment to low compliance, I would like
to speak briefly about our commitment to ratify the Kyoto
Protocol on Climate Change. Some of our political opponents
are portraying this commitment as foolhardy and
ideologically driven, and likely to impose significant
additional costs on New Zealand businesses. None of these
claims is true.

First, we must remember that there are
compelling reasons for New Zealand to support international
action on climate change. This country owes its prosperity
to a stable, equable climate. Primary production will
remain a basic driver of our economic welfare and the New
Zealand knowledge economy will reflect that – so climate
change is an issue of economic security for this
country.

If global warming is allowed to continue
unchecked, the long-term impacts on this country are likely
to be severe, including:

- Water
supply and infrastructure damage from higher rainfall in the
west of the country and drier conditions in the east.

The
costs of inaction on climate change are essentially
inestimable, but likely to be huge and to magnify with time.
Doing nothing is not the low-cost option.

It is true that
the Kyoto Protocol, as the only concerted international
action on offer, has its limitations. However, it
establishes a functional international mechanism for
reducing greenhouse gas emissions. New Zealand, for its
part, is committed to showing leadership, but is acting in
step with — not ahead of — a broad consensus of western
countries on the Kyoto Protocol. It is important to bear in
mind that, by the time New Zealand ratifies, some two dozen
western nations are expected to have done so, including
major trading partners like Britain and the EU.

The
Protocol does not come into force until enough developed
nations have ratified. In practice that means both Russia
and Japan must join the European Union, Canada, Britain,
Scandinavia and others in ratifying. It is likely, but not
yet certain, that both Russia and Japan will ratify and the
Protocol will come into force this year or early next.

In
the first Kyoto commitment period of 2008-2012, when
emission reduction targets apply, New Zealand will be a net
seller of carbon credits into the international market. This
means the overall economic effect of ratification will be
positive.

The government is committed developing
greenhouse policies consistent with economic growth and with
out policy of minimising compliance costs on business. It
has absolutely no interest in adopting crude or extreme
climate change policies that would run counter to that
goal.

Late in 2001 the government began a consultation
process on climate change policy. The results are informing
the development of a preferred policy outline, which we
expect to release soon. That will be open to further public
comment and the final cabinet decision on ratification will
be made in late July or early August.

If the Protocol does
not come into force for any reason, many of the policies
required to implement New Zealand’s obligations will not
take effect. Some policies – such as strategies for energy
efficiency, transport and waste management – will proceed
because they have a wide range of benefits. But there is no
sense in which New Zealand will be “going it alone” with
policies specifically relating to the Protocol.

If the
Protocol does come into force, it comes into full effect on
the first of January 2008. That is when our greenhouse gas
emissions begin to count against our target. The more lead
time we have, the easier it will be to implement a careful
and progressive approach to reducing emissions, rather than
a last-minute rush.

An important aspect of this careful
and progressive approach is a policy of working closely with
those industries that are vulnerable – including some major
primary industries, such as agriculture and timber
processing – and agreeing on sheltering processes to ensure
that there is a sensible transition period which does not
expose those industries to unfair competition from countries
who have yet to ratify.

On the more positive side, we
should bear in mind that, even prior to its adoption, the
Protocol will create business opportunities by raising
international demand for new technologies, and improvements
to existing ones, that reduce greenhouse gas emissions and
make more efficient use of energy. New Zealand should aim to
be a country that originates and profits from such
technological advances.

I cannot deny that ratifying the
Protocol will require a mind-shift in many sectors of the
New Zealand economy, just as it will require a mind-shift in
many other economies. It will be a shift towards business
practices that stabilise, and preferably reduce, the level
of greenhouse gas emissions. The government’s approach is
both principled and pragmatic. It is principled because we
believe strongly in the need for leadership in the area of
climate change, and in the very real threat that climate
change poses to New Zealand. And it is pragmatic because it
is consistent with a growing and sustainable economy, one
which we know is heavily dependent upon the health and
confidence of small businesses.

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